Many clients ask if they need a trust. It’s a great question, but it leads to another: What do you want your plan to accomplish?
There are many types of trusts, but when people talk about a trust, they are usually thinking of a Revocable Living Trust. Thus this blog will focus on Revocable Living Trusts.
Let’s begin with a brief discussion of what a Revocable Living Trust is and how it works. Then we’ll explore their benefits, which should give you a better idea of whether a trust is right for you and your family.
A Revocable Living Trust is a legal document that allows a grantor (the person that creates the trust) to put their assets in a separate legal entity – the trust. While the trust technically owns the assets, the grantor can continue to use them as he or she normally would.
When a Revocable Living Trust is established, the grantor names a trustee to manage the assets in the trust during their lifetime. Most grantors name themselves as trustee, giving them complete control over the trust’s assets. Typically, a grantor names a successor trustee to take over the trust and distribute trust assets after the grantor passes away.
One of the primary benefits of a Revocable Living Trust is that it lets the assets in the trust avoid probate after the grantor’s death. This can allow trust assets to be distributed to heirs quickly. Using a trust can also avoid the costs of probating the estate. In addition, a Revocable Living Trust protects the privacy of the grantor (and beneficiaries) because the trust’s provisions are confidential. A Last Will and Testament, on the other hand, is public and anyone can see the decedent’s assets, debts, beneficiaries, etc.
Another benefit of Revocable Living Trusts is they allow the grantor to control trust assets during their life and after he or she passes away. The grantor can stipulate when, how, and under what circumstances the successor trustee is authorized to distribute trust assets to beneficiaries. This is particularly important if the beneficiaries are not yet mature enough to manage an inheritance on their own, or in situations involving blended families. For example, the grantor could stipulate that children from a first marriage receive assets from the trust, not just the children from a more recent marriage.
Revocable Living Trusts can also be used to protect the grantor and the grantor’s family from a stressful and expensive guardianship proceeding if the grantor becomes incapacitated.
Although a Revocable Living Trust is a great tool for estate planning it may not be right for you. If your primary goals is to protect assets from long-term care costs, creditors, lawsuits, and other threats, an Irrevocable Trust or an Asset Protection Trust may be a much better option. If you have a loved one with special needs, a Special Needs Trust can allow you to create a fund for goods and services not provided by Medicaid or Supplemental Security Income while protecting eligibility for these vital programs. A Charitable Trust allows the grantor to set aside money for both a charity and beneficiaries, realize certain tax advantages, and generate an income stream.
These are but a few examples of various trusts and what they can accomplish. If you’re still not sure whether you need a trust, we welcome the opportunity to explain your options in detail and, if appropriate in your particular circumstances, design and implement the trust that’s right for you and your family.
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